The effect of tax compliance costs on SMMEsEntrepreneurs A South African perspective STATISTICS Unemployment 26 Challenges Funding Access to markets L abour laws Crime Lack of skills ID: 1027415
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1. Tax compliance costsProf Sharon Smulders
2. The effect of tax compliance costs on SMMEs/Entrepreneurs A South African perspective
3. STATISTICSUnemployment 26%Challenges:FundingAccess to marketsLabour laws Crime Lack of skillsRegulatory compliance burdenINCENTIVESIntegrated SB Development Strategy: Increase financial support (SEDA, SEFA, NYDA, TIA, NEF)Create a demand for SMME products & services (BBEEE codes)Reduce regulatory constraints3 BACKGROUND
4. TAX SYSTEM4
5. TAX SYSTEM5Taxpayer Bill of RightsConstitutionSARS Service CharterImprove ease & fairness of transacting with Revenue Authority
6. Cost of revenue collection Tax revenue collected(R million)SARS’ internal operating costs(R million)SARS’ cost of collection (% of tax revenue) 2012/13813 8268 6961.07%2013/14900 0158 7020.97%2014/15966 2959 5230.97%2015/161 069 98310 2450.96%2016/171 144 08110 6960.93%Source: National Treasury & SARS (2017:14).1%6
7. OPERATING COST OF TAX SYSTEMADMINISTRATIVE (Revenue Authority)TAX COMPLIANCE (Taxpayers)?1%7
8. Do tax compliance costs matter? Diminish business resources without raising income => waste of economic resources, reduces entrepreneurshippassed onto individuals in form of lower salaries, lower returns on investments & higher prices on products Assess efficiency of tax regime => tax complexity Affects tax compliance behavior => tax evasion8
9. What are TCCs & how are they calculated? Internal: Time spent by owner/staffExternal :Advisors’ timeIncidental:Stationery, training, software etc. 1 2 3Various methodologiesActual costActual cost9
10. Findings Individuals – preliminary findings (TCCs high)Small businesses – TCCs high and regressive – SB’s unware of incentivesMedium businesses – ?Large business – ?Complexity of law and operational procedures10
11. Recommendations11
12. 2 1NB! 3Operational:Improve education & outreach to SMMEs & Revenue Authority staff Policy: Perform regular TCC surveys: measure effect of reforms on TCCs 4RecommendationsOperational: Make e-filing easier & introduce app with zero data feesPolicy: Do RIA’s on all new legislation
13. FUTURE RESEARCHContinual TCC studiesDetermine best education & outreach practicesReview effectiveness of small business tax concessionsSimplify operational procedures
14. Legislative complexity14Layout and length of legislationReadability Estimates the years of formal education a person needs to understand the text on the first reading. General rule:Wide audience text: need a fog index less than 12. Near-universal understanding text: need an index < 8.Example:Fog index =12This requires the reading level of a United States high school senior (around 18 years old).Gunning Fog Index:Considerations:
15. Legislative complexity15 Words = 1 324Punctuation marks = 33Words with > 3 syllables = 186MEDICAL TAX CREDITS (s6A and s6B)EXAMPLE:Gunning Fog Index = 21.6717 = reading level of college graduate studentCOMPLEX
16. FUTURE RESEARCHContinue further TCC studiesDetermine best education & outreach practicesReview effectiveness of small business tax concessionsSimplify operational proceduresReview complexity of legislation
17.